Stagecoach-Virgin East Coast franchise to be renationalised
One of the two high-speed rail routes between London and Scotland will be renationalised for the second time in less than a decade, after franchise holder Virgin Trains East Coast said it could no longer make payments on its £3.3bn contract with the government.
The East Coast franchise, which operates intercity services between London Kings Cross and Scotland, will be taken over by the government, Transport Secretary Chris Grayling told Parliament.
Operators Stagecoach and Virgin Group, which paid £3.3bn to run the franchise until 2023, have lost almost £200m due to lower passenger numbers and smaller revenues than anticipated, but Grayling said there had not been a loss to taxpayers "at this time".
The franchise had previously been operated by the state between 2009 and 2015 in similar circumstances, after former franchise holder National Express could not meet commitments.
Despite their failure on the East Coast Main Line, Virgin and Stagecoach will be allowed to bid for future rail franchises, Grayling said, after being advised "there is no suggestion of either malpractice or malicious intent in what has happened".
He added that the firms have paid a "high financial and reputational price" in relation to the East Coast route.
Grayling had announced in November that Virgin Trains East Coast - a 90%-10% joint venture between Stagecoach and Richard Branson’s Virgin - would be stripped of the franchise three years early in 2020, in a bid to save the operator up to £2bn in payments it could not afford.
Stagecoach said it had attempted to negotiate a new contract with the Department for Transport, without success.
In February, Grayling instructed civil servants to investigate options for the East Coast franchise, having conceded that it was “unsustainable”.
The East Coast region has become a poisoned chalice of sorts for rail operators, with all three franchise holders failing since privatisation.
On privatisation in 1996, the region was let to Sea Containers under the brand GNER. It operated the route for 10 years, before being stripped of it in 2006 due to financial constraints linked to its overbid for the route.